EUR/USD continued to trade sideways on Tuesday. As of Wednesday morning, the pair's quotes are holding above the 127.2% Fibonacci retracement level at 1.1220, suggesting potential for a modest rise toward the 100.0% Fibonacci level at 1.1325. Consolidation below 1.1220 would favor the US dollar and a potential decline toward the 1.1081–1.1086 support level.

The wave structure on the hourly chart remains bearish. The last completed downward wave broke below the previous low, while the new upward wave has not yet broken above the previous high. Following the September FOMC meeting, traders expect at least one more monetary policy tightening move by the end of this year and another next year. This factor continues to provide strong support for the US dollar, while other factors have yet to gain significance. Bearish traders are gaining momentum, which is also helping the dollar appreciate.

The news flow on Tuesday did not support the bulls. Both ZEW economic sentiment indices for Germany and the European Union came in below traders' expectations. Therefore, any thoughts of launching an upward move quickly faded. However, these indices had little impact on market sentiment and even less on the outlook for the ECB's monetary policy. Inflation is currently the most important indicator for the eurozone. It has continued to rise for almost a year, despite two rounds of monetary policy tightening. It currently stands at 3.8%, compared with 1.7% year-on-year a year ago. Therefore, the ECB is unlikely to change its policy stance in the near future. ECB President Christine Lagarde is scheduled to speak today and may clarify whether another interest rate hike should be expected at the next policy meeting. In this assessment, a rate hike appears likely, although many experts believe that a hawkish decision will be postponed until the end of the year. There seems to be little reason to wait when inflation is rising almost every month. Nevertheless, traders see little reason to buy the euro, despite the ECB's monetary tightening.

On the 4-hour chart, following the formation of a fifth bullish divergence, EUR/USD reversed in favor of the euro again and rose to the 127.2% Fibonacci retracement level at 1.1221. Consolidation above this level would open the way for a rise toward 1.1325. Consolidation below 1.1221 would favor the US dollar and a resumption of the decline toward the 161.8% Fibonacci retracement level at 1.1088. No emerging divergences are visible today.

Commitments of Traders (COT) Report:

During the latest reporting week, professional traders closed 20,091 Long positions and opened 18,150 Short positions. The total number of Long positions held by speculators currently stands at 223,000, while the number of Short positions stands at 360,000. The bears remain in control, and the euro continues to be sold more frequently than it is bought. This can be attributed to the complex geopolitical situation in the Middle East and Kevin Warsh's efforts to bring inflation down. The market continues to believe that inflation will be reduced to 2% by any available means.

Overall, major market participants continue to show considerable interest in the euro over the long term. Global events of various kinds, which have been particularly numerous in recent years, undoubtedly influence investor sentiment and put pressure on risk-sensitive currencies. Moreover, 2026 could set a record for the number of events that could not have been predicted in advance. As a result, traders have little choice but to adapt to changing conditions as they unfold.

Economic Calendar for the United States and the European Union:

• European Union – Speech by ECB President Christine Lagarde (16:00 UTC).

The economic calendar for October 21 contains one event of considerable interest. Economic developments may influence market sentiment on Wednesday, particularly during the second half of the day.

EUR/USD Forecast and Trading Recommendations:

Long positions are possible if the hourly chart closes above 1.1220, with a target of 1.1325. Short positions are possible if the hourly chart closes below 1.1220, with the 1.1081–1.1086 support level as the target. The 1.1220 level has not performed particularly well in recent days, and signals around it have been weak.

The Fibonacci retracement levels are drawn from 1.1325 to 1.1712 on both the hourly and 4-hour charts.